1. An investor wants a real rate of return i, of 6% per year. If the expected annual inflation rate for the next several years is 2.5%, what interest rate I should be used in project analysis calculations?
2. What is the benefit to Jamie Lee and Ross of investing in a company’s IPO? Will they be guaranteed a large return from this investment? At this life stage, would you recommend that Jamie Lee and Ross invest in an IPO? Why or why not?
3. Suppose that you estimate a company’s growth to be 15% for the next 3 years and 5% thereafter. The company recently paid a dividend of $1 per share. If you require a 7% rate of return, what is the value of this stock?